Mobile Payments in East Africa: Yesterday’s Solutions and Tomorrow’s Challenges

June 11, 2015         By: Eran Feinstein

In the year 2000, the nearly universal lack of access to banking services meant the financial exclusion of an overwhelming majority of East Africans from economic participation.

Limited access to cash meant limited buying power and diminished opportunities for economic growth. It also meant that most of the population found it impossible to save money, make financial transactions, transfer funds to family members in other areas, or apply for any type of loan.

Fast forward to 2015, and mobile payments have become a common and fundamental aspect of the business world. Today, anyone with a mobile phone can buy or sell goods and services without cash. Mobile payment methods have become the preferred payment method and preferred currency, and growth in African markets continues unabated because of their simplicity and convenience.

Visitors to East Africa have also taken to the new mobile payment revolution. Mobile phone kiosks are available in most major airports, where a traveler can quickly acquire a mobile device, along with a local SIM-card and phone number, and charge it with enough digital currency to cover his or her travels in Africa.

No longer do tourists need to concern themselves with the safety issues of traveling with credit cards, debit cards, or cash; with mobile payments so widely accepted in East Africa, a traveler can easily pay for just about anything via cell phone. From taxi fare to the hotel bill, or from a safari adventure to dining out, mobile payments are accepted almost everywhere.

However, as with any technological advancement, challenges abound, and solutions are not always easy to come by.

Complications include issues of interoperability among payment processing platforms, lack of web-based technology, cross-border transactions, customer privacy and safety regulations and the complexities of transaction authentication. As the mobile payment industry continues to grow, pressure on stakeholders to offer more standardization and options increases.

From financial institutions to mobile network operators, the potential solutions all have their proponents.

One possibility is a partnership between independent sales organizations, merchants, and payment processors to develop a flexible authentication solution that minimizes the burdens of payment processing management, integration, and cost volatility for merchants. Such a system would also grow with the market, accommodate industry standards, and ensure security compliance. Bundling these core services as component modules would allow merchants to mix and match according to their requirements.

Continued growth of mobile payments also depends on a focused solution for issues surrounding transaction and data security. Data collection and payment processing platforms are vulnerable to fraud.

Some industry thinkers believe the elimination of point-of-sale (POS) systems is inevitable. With point-to-point encryption and tokenization, elimination of POS systems will take the primary account number out of the transactional equation—the ultimate protection for anti-hacking security.

Others believe biometrics, such as fingerprinting, iris scanning, and voice or facial recognition software will be the key.

The question is: How much resistance do consumers pose to methods that could facilitate the violation of individual privacy? Global outrage over the United States’ National Security Agency’s cell phone tapping and records hacking merely underlines consumers’ reluctance to have personal data and biometrics floating through cyberspace.

Still others say mobile devices already have unique IP addresses, offer GPS, and cell tower tracking to make it possible to compare hardware and software configurations, and develop a device personality. Coupled with consumer patterns such as sites visited, daily routines, regular purchases, and unique user input analysis (typing or swiping speeds, pressures, and pauses), physical mobile device tracking already makes transactional and data security possible.

Perhaps most challenging of all is the issue of migration within continental Africa.

As more people seek work in other areas, the scarcity of reliable methods of sending money home makes mobile payments an attractive option.

The African continent is massive, however, and cellular infrastructure development lags behind demand in many places. The sheer data volume has stretched service providers’ capacity near to breaking. Mobile payments work—as long as both payer and payee have mobile network service. Costly infrastructure improvements, payment platform innovations, and updates and fixes have fallen behind the demand.

While governments, network providers, and financial institutions grapple with political and regulatory solutions, transnational money transfers remain mired in red tape. To achieve improvements, there must be adequate demand for mobile payment services, as well as host-home country banking partnerships and policy coordination. Four factors will determine the outcome:

  • Risk-based regulations — which “know your customer” laws and anti-money laundering regulations are necessary
  • Development oriented support — what systems best promote development
  • Low cost innovation and consolidation — how to control costs, where is there duplication, opportunities for shared infrastructure and platforms
  • Security — who is responsible for data protection and best practices

Mobile payments have made financial inclusion and integration possible for Africa’s low and middle-income population. Likewise, the technology has fueled the economy by creating platforms upon which new businesses and entrepreneurs can blossom, grow, and thrive.

As access to mobile payments spreads across the continent, and with attention to future development as well as regulation, national and local economies will grow, stimulated by increased consumer spending.


Eran Feinstein is the founder of 3G Direct Pay Limited, a global e-commerce and online payments solutions for the travel and related industries. With over 14 years of leading technology, sales, marketing and operation teams Eran is an authority in the East African e-commerce and payments arena. He’s also an avid marathon runner.